Brazil-Exposed Companies Slide After Surprise Lula Victory — Update

By Michael Hennessey and Joe Stonor

Shares in Brazil-exposed European companies fell after a surprise victory for leftist incumbent Luiz Inacio Lula da Silva over right-wing contender Flavio Bolsonaro in Sunday's presidential election.

Shares in Spain's largest bank, Santander, fell close to 4%, while telecoms group Telefonica dropped 7.2% in early trade Monday. AB InBev, which owns a stable of beer brands popular across South America, fell 3.5%. Spanish and Portuguese stocks were especially hard hit by the election result. The IBEX 35 fell 0.3% in Madrid and Portugal's PSI 20 dropped 0.7%, even as other European stock indexes rose.

The falls come amid a broader selloff in Brazilian assets. A gauge of Brazilian stocks represented by the iShares MSCI Brazil ETF is on track for its most severe one-day fall since at least 2000, falling over 27% in premarket trade.

A victory for Bolsonaro--which was widely expected--had been viewed as the more market-friendly outcome due to promises of fiscal consolidation, privatization and pro-business reforms. The first round of the election earlier this month gave a clear lead to Bolsonaro ahead of Sunday's runoff vote, so Lula's victory surprised investors.

"Lula is perceived as the less market friendly candidate due to fiscal indiscipline," RBC Capital Markets' Benjamin Toms said. The election could also lead to unrest across the country, Toms added. Lula's victory was challenged by Bolsonaro, who disputed a final-hour Supreme Court decision to extend voting hours.

The election was seen as a key catalyst for Santander, as Brazil forms its second-largest market, contributing around 15% of earnings in 2025 with a pretax profit of 3.22 billion euros ($3.61 billion).

Operating as one of Brazil's largest private lenders, Santander is exposed to local consumer credit and domestic interest rates, leaving its bottom line sensitive to shifts in the country's political and economic leadership.

AB InBev's exposure to Brazil comes from its majority stake in Ambev, the market-leading brewer in Brazil producing brands including Skol and Brahma.

Telefonica operates in Brazil under its Vivo brand, which is the nation's largest mobile carrier. Telefonica's Brazilian arm accounted for 28% of the company's revenue in 2025 at 9.45 billion euros.

Investors worry that President Lula will pursue a more expansionary fiscal policy than Bolsonaro, Panmure Liberum analyst Callum Stokeld wrote in a note. However, Lula does not have carte blanche given the rightward shift in Brazil's congressional and senate elections, and the market's reaction might be excessive, Stokeld said.

"Lula faces sizable political constraints on any attempts to pursue business-hostile policy," the analyst added.

Write to Michael Hennessey at michael.hennessey@wsj.com and to Joe Stonor at josephmichael.stonor@wsj.com

(END) Dow Jones Newswires

October 26, 2026 07:03 ET (11:03 GMT)